As ‘fiscal cliff’ looms, still no deal

The US Congress was due to come back yesterday without a deal to avert the “fiscal cliff” and only a few hours of actual legislative time scheduled in which to act if an agreement materializes.

Negotiations involving US Vice President Joe Biden and US Senate Minority Leader Mitch McConnell appeared to offer the last hope for avoiding the across-the-board tax increases and draconian cuts in the federal budget that would be triggered at the start of the New Year because of a deficit-reduction law enacted in August 2011.

Democratic and Republican leaders in the US Senate had hoped to clear the way for swift action on Sunday. However, with the two sides still at loggerheads in talks, US Senate Majority Leader Harry Reid postponed any possible votes and the Senate adjourned until yesterday.

The main sticking point between Republicans and Democrats remained whether to extend existing tax rates for everyone, as Republicans want, or just for those earning below US$250,000 to US$400,000, as Democrats have proposed.

Also at issue were Republican demands for larger cuts in spending than those offered by US President Barack Obama.

While Congress has the capacity to move swiftly when motivated, the leaders of the US House of Representatives and the Senate left themselves little time for what could be a complicated day of procedural maneuvering in the event of an agreement.

US House Speaker John Boehner has insisted that the Senate act first, but that chamber was not due to begin legislative business until about noon yesterday.

The cliff was not the only business on the House agenda. Farm-state lawmakers were seeking a one-year extension of the expiring US farm law to head off a possible doubling of retail milk prices to US$7 or more a gallon early this year. Relief for victims of Hurricane Sandy was waiting in line in the House as well, though it could still consider a Senate bill on assistance for the storm until tomorrow, the last day of the Congress that was elected in November 2010.

Expiring along with low tax rates at midnight were a raft of other tax measures affecting tens of millions of Americans.

A payroll tax holiday Americans have enjoyed for two years looks like the most certain casualty as neither Republicans or Democrats have shown much interest in continuing it, in part because the tax funds the Social Security retirement program.

The current 4.2 percent payroll tax rate paid by about 160 million workers reverted to the previous 6.2 percent rate today, and is the most immediate hit to taxpayers.

A “patch” for the Alternative Minimum Tax (AMT) that would prevent millions of middle-class Americans from being taxed as if they were rich was also in danger of going over the “cliff” as well. Both Republicans and Democrats support doing another patch, but had not approved one.

At best, the Internal Revenue Service has warned that as many as 100 million taxpayers could face refund delays without an AMT fix. At worst, they could face higher taxes unless Congress came back with a retroactive fix.

After today, Congress could move for retroactive relief on any or all of the tax and spending issues. However, that would require compromises that Republicans and Democrats have been unwilling to make so far.